Rates flat and stock market sinks

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Published Date 3/19/2018

Facebook led the stock market lower today; at one point the DJIA down 500 points and the other indexes hammered hard. The bond and mortgage markets sat quietly waiting for the FOMC on Wednesday afternoon. Some analysts and economists are expecting the Fed will increase the Federal Funds rate four times this year. We see three but not four, although if markets get four, it will be on the back of a very positive economic growth forecast led by a run-up in inflation. Markets got it wrong earlier this year about the stock market predicting the DJIA.

New comments floating around now that maybe the stock market has hit its high. Morgan Stanley took the lead today: "With volatility moving higher we think it will be difficult for institutional clients to gross up to or beyond the January peaks,"…. "Retail sentiment indicators also look to have peaked in January, and we do not see anything on the horizon to get retail investors more bullish than they were following a tax cut." It is a day to day thing, the recent decline in stock indexes has been deeper than what had been generally expected, so the bearish idea is picking up steam. It is too soon to adopt that thought, need a couple more months to get a better insight. Four rate increases from the Fed and the ECB ending its bond-buying; if the end has occurred as some believe the Fed and ECB won’t have the reason to increase rates much. If the economy slows, inflation concerns presently heating up will quickly dissipate unless a trade war actually happens then inflation will increase regardless of what the Fed does or doesn’t do with rates, and the economies of the world will slow.

Interest rates are unlikely to move in any significant way until Wednesday afternoon; the 10 yr remaining in it six-week tight range and mortgage rates unchanged until then. The FOMC doesn’t yet expect anything but increased economic growth, increased wages and inflation increasing. Won’t be the first or last time the Fed gets it wrong. No economic data tomorrow; the stock market volatility tomorrow and Wednesday will be high.

Uber self-driving car ran over and killed a pedestrian in a crosswalk.

Two weeks prior to his death last week Stephen Hawking and a colleague finished a paper saying the earth will burn up by 2600. Commenting there are other separate universes other than earth and that our stars will burn out soon. Humans would eventually need to colonize another planet or face extinction. "Somewhere in the cosmos, perhaps, intelligent life may be watching these lights of ours aware of what they mean," Hawking said. "Or do our lights wander a lifeless cosmos, unseen beacons announcing that here on our rock, the universe discovered its existence?"

This Week’s Calendar:

Wednesday;

7:00 am weekly MBA mortgage applications

8:30 am Q4 current account balance (-$126.8B)

10:00 am February existing home sales (+0.75% to 5.42 mil)

2:00 pm FOMC policy statement, Fed quarterly projections for inflation, economic growth and forecasts for the Fed funds rate.

2:30 pm Fed chair Powell press conference

Thursday,

8:30 am weekly claims (225K -1 K)

9:00 am Jan FHFA housing price index (+0.4% from +0.3% in Dec)

9:45 am PMI Composite Flash index (55.2 from 55.9 in Jan)

10:00 am Feb leading economic indicators (+0.3%, down from +1.0% in Jan)

Friday,

8:30 am Feb durable goods orders (+1.7%, excluding transportation orders +0.6%)

10:00 am Feb new home sales (620K +4.3%)

Source: TBWS

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